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5.78 option_willowtree

Function File: value = option_willowtree (CallPutFlag, AmericanFlag, S, X, T, r, sigma, dividend, dk, nodes, path_static)

Computes the price of european or american equity options according to the willow tree model.
The willow tree approach provides a fast and accurate way of calculating option prices. This implementation of the willow tree concept is based on following literature:

Example of an American Call Option with continuous dividends:
(365 days to maturity, vector with different spot prices and volatilities, strike = 8, r = 0.06, dividend = 0.05, timestep 5 days, 20 nodes): option_willowtree(1,1,[7;8;9;7;8;9],8,365,0.06,[0.2;0.2;0.2;0.3;0.3;0.3],0.05,5,20)

Variables:

See also: option_binomial, option_bs, option_exotic_mc.